Funding has been stopped and three certificates are unpaid.
Funding has been stopped and three certificates are unpaid. The contractor has suspended obligations. Subsequently, vandalism occurred on site – whose problem is that?
Section 112 of the Housing Grants, Construction and Regeneration Act 1996 provides that if a sum due under a construction contract is not paid in full by the final date for payment and no withholding notice has been served, the person to whom the sum is due has the right to suspend performance of all obligations under the contract.
A contractor engaged on a construction contract that does not have a residential occupier is entitled to enforce that right by giving at least 7 days’ written notice to the employer. The right is included in SBC by clause 4.14, in IC and ICD by clause 4.11 and in MW and MWD by clause 4.7. The principal difference between the JCT contracts and the Act is that each of the JCT clauses requires the contractor to send a copy of the suspension notice to the architect. If that is not done, the suspension is still valid, but it is carried out under the Act rather than under the contract terms. Where a copy is sent to the architect, the suspension is carried out under the terms of the contract that provide, in the case of SBC, IC and ICD, that the contractor will be entitled to an appropriate extension of time and any loss and/or expense caused by the suspension. The Act provides only for extension of the contract period.
In this question, it seems that the contractor has exercised a remarkable – one could say foolish – degree of forbearance so far as the three unpaid certificates are concerned. It is presumed that the requisite 7 days’ written notice has been given; if not, then the situation would be less clear. Failure to pay one certificate is a breach of contract on the part of the employer, which entitles the contractor to take steps to terminate the contract under the appropriate clauses (SBC, IC and ICD: clause 8.9, MW and MWD: clause 6.8). Failure to pay three certificates probably entitles the contractor to accept the employer’s conduct as repudiatory, bring the obligations of both parties to a permanent end and claim damages. But if there has been no acceptance of the repudiation and the contractor has merely suspended its obligations without giving the necessary 7 days’ notice, it amounts to a breach of contract on the part of the contractor. It is probably not a breach that entitles the employer to accept it as repudiation for two reasons:
- The contractor is not saying that it will never continue its obligations, but simply that it will suspend them until it is paid. An expressed intention to suspend precludes the implication of an intention to bring the contract to an end.
- The contractor intends to comply with the contract, albeit it has gone about this improperly, therefore there is no intention to repudiate the contract.
Nevertheless, it is a breach of contract and the employer would be entitled to such damages as flow from the breach. The cost of rectifying the acts of vandalism might well fall into that category.
The position is totally different if the contractor has given the requisite notice. When the notice expires, the contractor is entitled to leave the site. The contractor owes a general duty to leave the site in a safe condition, but the duty to insure comes to an end together with all the contractor’s other contractual duties. If vandalism occurs, the failure of the employer to make payment is not the cause, but it is a circumstance without which the vandalism probably would not have occurred. The reason the site was unprotected was because the contractor had exercised the right to suspend. The problem would be the employer’s problem, along with all the other problems associated with total cessation of work on site.